BHP Billiton Ltd. is taking the next step toward building a controversial potash mine in Saskatchewan, three months after losing a bid to buy Potash Corp. of Saskatchewan Inc., the world's largest producer of the commodity.
Australian-based BHP has moved its Jansen potash project into the feasibility stage, which it says proves a commitment to build what could become the world's largest potash mine and the first in resource-rich Saskatchewan in 40 years.
A number of mining companies are planning to move into the potash space to capitalize on growing demand for the fertilizer ingredient and rising prices, which are expected to keep climbing as the world's population continues to swell.
Jansen has been a contentious project ever since BHP launched its ill-fated $39-billion bid for Potash Corp. late last summer.
Potash Corp. alleged at the time that BHP had talked up its plans for the massive mine in an attempt to drive down potash prices and the producer's stock, allowing it to bid for the company at a cheaper price. BHP denied the allegations. BHP's inability to guarantee that it will build Jansen is also said to be one of the reasons Ottawa rejected its bid for Potash Corp. as not being a net benefit for the country.
On Wednesday, BHP said its decision to move into the feasibility stage "further highlights the group's ongoing commitment to the project, the Province of Saskatchewan and Canada."
Still, BHP won't decide until next year whether to proceed with construction of Jansen, located about 140 kilometres east of Saskatoon. The feasibility study will determine, among other factors, the cost to build the project, which analysts estimate will be more than $12-billion over three phases. If approved, production would begin around 2015 at about two million tonnes annually and reach full capacity of eight million tonnes per year by about 2025, with a mine life of about 70 years.
"The world will need new greenfield potash mines," Graham Kerr, president of BHP's specialty products division, said in an interview. The project will become a platform for "a significant and scalable potash business" for BHP, he said.
BHP also needs environmental approvals from the provincial government, which should be decided later this year. While the province vehemently opposed BHP's bid to buy Potash Corp., saying it didn't want to give up a strategic resource, leaders remain hopeful the mining giant will move ahead with Jansen.
"This is very good news," Premier Brad Wall said Wednesday. "It's good to have a company of their stature so engaged in our economy. We look forward to a new potash mine."
Mr. Kerr said BHP and the province have been working well together, despite its rejection of the Potash Corp. bid. "Despite everything, the government has never really said a bad word about us. I think the government does actually want investment in the province," he added.
Potash Corp. chief executive officer Bill Doyle has been vocal about his skepticism that other companies will cough up the considerable cash needed to make a new potash mine economical.
Last week, he also told investors that building a new mine takes more than two or three years, which is a timeframe used by BHP and others with plans to build new potash mines.
"It's just impossible. It's almost comical that anyone would believe that," said Mr. Doyle, whose company is planning expansion of its existing mines.
By talking down the prospects of new mines, Mr. Doyle is doing his job, said Dahlman Rose & Co. analyst Charles Neivert. "Until they [BHP]put a hole in the ground he's going to continue to say something like that."
Others believe BHP's announcement Wednesday shows they are on track to build the project.
"Generally when a large-cap miner advances a project through the feasibility stage, it is highly likely to see it developed," BMO Nesbitt Burns analyst Tony Robson said.Report Typo/Error